Roundup of my posts over the last week discussing the TED spread and it’s relation to the US stock market. Now I’m free to move on to other geekery.
TED Spread as an (Inconsistent) Lagging Indicator
Summary: since 1995, the relationship between concurrent changes in the TED spread and the stock market has been inconsistent and/or non-existent, but might be rearing its head again with the current credit crises.
TED Spread as a (Pretty Good) Leading Indicator
Summary: interpreted correctly, the TED spread has done a pretty good job over the last 20 years predicting monthly moves in the stock market.
Summary: additional stats and graphs for the TED-based trading strategy shared in the previous post.
TED Spread is Very Predictable
The post that never was. I didn’t write this post up because I think very few people could make use of the observation, but in a nutshell, the TED spread has been very predictable. It exhibits a strong tendency to reverse in both daily and monthly timeframes, or put another way, up days tend to follow down days (and vice-versa) and up months tend to follow down months (and vice-versa). This observation has been consistent over the entire last 20 years with the exception of the bull market in the late 1990’s.
Happy Trading,
ms
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Filed under: Treasuries & Interest Rates | 5 Comments
Mike, I curiously follow your blog. Thanks so much for all the valuable information. Can you share with us how to obtain data for TED spread on a daily basis if you were to use it in a trading strategy? In case you know the answer. Thanks so much, again! Please keep posting.
RE to GM: thanks for the kind words. Take a look at this post for info on calculating the TED (http://marketsci.wordpress.com/2008/11/03/this-week%e2%80%99s-series-the-ted-spread-and-the-stock-market/). The 3 mo Tbill rate could be had from Yahoo finance (http://finance.yahoo.com/q/hp?s=%5EIRX). I don’t recall where I got the Libor rate, but it should be pretty easy to find on the web (it’s a common measure). Hope that helps! michael
Played with the Ted Spread on paper some years back – would like to get back into it – Used T Bill and ?? for spread, from newspaper. Doesn’t seem to be the same now. Can you provide steps, i.e, where do I go from here?
RE to Shannon: from the comment just prior to yours:
Take a look at this post for info on calculating the TED (http://marketsci.wordpress.com/2008/11/03/this-week%e2%80%99s-series-the-ted-spread-and-the-stock-market/). The 3 mo Tbill rate could be had from Yahoo finance (http://finance.yahoo.com/q/hp?s=%5EIRX). I don’t recall where I got the Libor rate, but it should be pretty easy to find on the web (it’s a common measure). Hope that helps! michael